Malaysia's derivatives exchange said on Monday it will launch its palm olein futures contract on June 16, though traders said it could face a challenge building up turnover to match the success of its benchmark futures contact.
Bursa Malaysia's RBD palm olein futures contract, which will trade in U.S. dollars, will provide a new path to hedge and lock in refining margins of palm oil -- the world's most traded vegetable oil.
The new contract will need to generate ample liquidity to attract traders.
"The main concern is liquidity. If there's high participation and high liquidity, then it will be a success," said a trader at a foreign commodities brokerage in Kuala Lumpur who declined to be named.
"If the future contract tracks the cash contract, you may see people going in. But if everyone is watching everyone else, there there will be a problem."
RBD palm olein is a refined, bleached and deodorized form of crude palm oil, used as cooking oil and as an ingredient in a variety of products ranging from margarines to instant noodles, as well as soaps and cosmetics.
Bursa Malaysia Derivatives (BMD) chief executive officer, Chong Kim Seng, said he was confident the new contract would match the success of palm oil.
"What we do for crude palm oil, we can now do for palm olein," said Chong, speaking on the sidelines of an investment conference in capital Kuala Lumpur.
"Now refiners finally have a tradeable instrument on a similar platform that BMD offers for crude palm oil," Chong added.
The crude palm oil futures contract on Bursa Malaysia Derivatives Exchange has set the tone for global palm oil prices for the last ten years, with about 200 million metric tonnes traded last year.
Palm olein futures are also traded on China's Dalian Commodities Exchange.
Chong said palm olein futures could be used to hedge against the risk of crop-damaging weather making prices more volatile.
Meteorology experts say that there is a higher possibility that El Nino, a warming of sea temperatures in the Pacific that can trigger both floods and drought in different parts of the globe, will return this year.
While palm oil growers expect minimal damage to crops for now, they do not rule out that prices could surge if there is prolonged and severe dry weather.
Trading hours of the palm olein futures contract will be between 9.00 am-12.00 pm Malaysian time (0100-0400 GMT) and 1.30 pm-6.00 pm (0630-1000 GMT).
India and China are the world's top palm oil consumers, while Indonesia and Malaysia are the biggest exporters that produce about 85 percent of global supply. (Reporting By Anuradha Raghu; Editing by Ed Davies)
Source: Reuters